South Africa: Collection And Exchange Of Tax Related Information By Tax Authorities

Tax authorities across the globe are working aggressively to
collect taxes which they believe are collectable in their
respective jurisdictions. States are entering into
bilateral and multilateral agreements aimed at
assisting each other in the collection of information and taxes.
South Africa has actively taken part and in some
respects been a regional leader in issues relating
to the gathering of information and sharing thereof with other
states to ensure that taxes are paid where they should rightfully
be paid. The most noticeable of these types of agreement is the
United States of America ("USA") Foreign Account
Tax Compliance Act ("FATCA") Agreement. The
South African and US governments signed the FATCA Agreement on 9
June 2014 and it is still to be ratified and passed by
Parliament.

This article will discuss some of the developments relating to
the gathering and exchange of information from a South African
perspective including the powers of the South African Revenue
Service ("SARS") incorporated in the Tax Administration
Act, 2011 ("TAA") which came into effect on 1 October
2012. It will outline the various agreements which South Africa has
entered into relating the exchange of information and finally a
United Kingdom ("UK") Court of Appeal judgment delivered
in 2013 dealing with Article 25A of the South Africa/UK double tax
treaty on assistance in the collection of taxes.

SARS has been entrusted with powers under Chapter 5 the TAA to
gather relevant material from taxpayers for
purposes of proper administration of tax laws by way of inspection,
verification or audit. If at any time before or during the course
of an audit it appears that a taxpayer has committed a serious tax
offence, the matter may be referred for criminal
investigation. SARS' powers to gather information
extend beyond the specific taxpayer who is being investigated,
audited or whose affairs are being verified. SARS may require a
third party to submit relevant material that SARS requires
regarding a taxpayer.

In addition to the abovementioned powers, Chapter 11 of the TAA
empowers SARS to collect a tax debt owed by a taxpayer from
a third party who holds or owes or will hold or owe any
money, including pension, salary, wage or other remuneration to a
taxpayer and if the third party fails to do so, such person may be
held personally liable for the money. Part E of Chapter 11 of the
TAA empowers SARS to –

apply for a preservation order in relation to
any assets of a taxpayer where a foreign state has
requested a conservancy of an amount alleged to be
due to the foreign state by the taxpayer under the
tax laws of the foreign state where there is a risk of dissipation
or concealment of assets; and

collect an outstanding tax debt by applying to
a court for an order compelling the taxpayer to repatriate
assets located outside South Africa in order to satisfy a
tax debt.

Based on the above, SARS has extensive powers to collect
information and tax debts not only owing to itself but to
the taxauthorities of foreign
states.

It should therefore not come as a surprise that SARS has
entered into various bilateral and multilateral agreements
with other states for the purpose of obtaining and
exchanging information and the collection of taxes owed to
SARS from assets situated in other states.

SARS has entered into the following agreements
with other states

The USA FATCA Agreement whereby the two states
can exchange information automatically under the
provisions of the double taxation agreement concluded between them.
This agreement requires South Africa's Foreign
Financial Institutions to collect and report on certain information
to SARS with effect from 1 July 2014. Institutions that
must report under FATCA include South African banks and custodians,
brokers, asset managers and private equity funds. Information
reported to SARS will then be exchanged with the US
Treasury through a process of Automatic Exchange of
Information under the legal framework provided by the
double taxation agreement that exists between
South Africa and the US. The US will reciprocate and provide
similar information to South Africa in relation to South African
taxpayers. The aim of the FATCA Agreement is to combat tax
evasion and improve international tax compliance.

Multilateral Mutual Administrative Assistance
Conventions / Agreements. These are agreements between two
or more states to enable them to exchange tax information
on request automatically, as well as to provide
assistance in the collection of taxes. South Africa has
signed the Multilateral African Tax Administration Forum
Agreement on Mutual Assistance in Tax Matters and the
Multilateral Southern African Development Community
Agreement on Assistance in Tax Matters. In addition to the
above, South Africa has signed and ratified the Multilateral
Convention on Mutual Administrative Assistance on Tax Matters as
amended by the Protocol which came into effect on 1 March 2014.
Other states which have entered into the aforementioned convention
include India, Netherlands and the United Kingdom and many
others.

Bilateral Tax Information Exchange agreements
between two states to enable them to exchange tax
information upon request. South Africa has entered into
these agreements with states such as Bermuda, Guernsey and
the Cayman Islands.

In the 2013 appeal case of Ben Nevis (Holdings) v
Commissioners for HM Revenue & Customs [2013] EWCA civ
578, the England and Wales Court of Appeal (Civil Division)
dismissed the appeal brought by the Appellant, a company
incorporated in the British Virgin Islands and held that the
Respondent (HM Revenue & Customs) was entitled in terms of
Article 25A of the South Africa/UK double tax treaty, to collect
tax debts owing by the company to SARS.

Based on the above domestic legislation, international
agreements and case law, it is clear that tax authorities
worldwide are seeking to know the tax affairs of their taxpayers
not only in their local jurisdictions but in offshore jurisdictions
too. Tax authorities are keen on
co-operating with each other towards a common goal
– ensuring that taxpayers are paying taxes where they should
be paying taxes.

The gap for secrecy provisions and regimes is accordingly slowly
closing in on non-compliant taxpayers as tax authorities co-operate
more and more with each to protect their respective tax
bases and to assist each other collect taxes owing
to them.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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